1. Technical Field
The present disclosure generally relates to systems and methods for electronically trading securities. More particularly, and without limitation, the present disclosure relates to systems and methods that facilitate electronic negotiation of terms for securities lending transactions between a trader and one or more counterparties, that execute the securities lending transactions in accordance with the negotiation terms, and that submit the executed transactions to central clearing counterparties.
2. Background Information
Today, securities lending and borrowing are common practices among financial institutions, hedge funds, and investment banks due to increasing demand from the securities industry to cover settlement failures and support investment strategies involving short selling. Despite advances in high-speed algorithmic trading processes, transactions involving securities lending and borrowing are generally initiated and negotiated based on personal relationships between professionals working at financial institutions.
The reliance on bilateral agreements leveraging interpersonal relationships between contracting parties results in a lack of transparency in the securities lending market that affects all participants. In particular, the lack of market transparency may result in inefficient pricing strategies that reflect not only the value of the underlying securities, but also relatively high intermediate costs associated with the maintenance of bilateral counterparty credit agreements.
Further, the lack of a central clearing facility in the securities lending market increases capital costs for both prime brokers and agent lenders. Such capital costs, and the resulting balance sheet management issues, may become more onerous for market participants as regulators continue to strengthen the capital reserve requirements for major market participants.
In view of the foregoing, there is a need for improved systems and methods that negotiate terms for securities lending transactions between a trader and one or more counterparties and that execute the securities lending transactions in accordance with the negotiation terms. Moreover, there is a need for improved systems and methods to submit the executed securities lending transactions to central clearing counterparties. There is also a need for such systems and methods that can be implemented in a computer-based environment.